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Start-Up Health Insurer Finds Foothold in New York

Kevin Nazemi, left, and Joshua Kushner, two founders of the health insurance company Oscar.Credit
Joshua Bright for The New York Times

One afternoon in late March, Kevin Nazemi stood along a wall of the small, sweltering offices of the health insurance start-up Oscar in downtown New York, trying to rally the troops.

Noting that so far more than 10,600 New Yorkers had signed up for health insurance through Oscar, Mr. Nazemi, 32, a former Microsoft marketer who was a co-founder of Oscar last year, predicted long hours as individuals raced to meet the March 31 deadline for insurance coverage this year.

As Mr. Nazemi wrapped up, the 50 or so people in the room — most of whom appeared to be wilting in the heat thanks to a malfunctioning thermostat and in dire need of a Red Bull — clapped weakly before returning to their phones or computer screens.

Nearby, another founder, Joshua Kushner, 28, the scion of a New York area real estate dynasty whose venture capital firm has placed a sizable bet on Oscar, watched silently as he pulled his bright purple hoodie up over his head.

Oscar is Silicon Alley’s challenge to the staid business of health insurance. It is trying to use its tech-world skills to provide an easier experience to consumers. Its snazzy website is extremely easy to navigate (typing in “I have a stomachache” will pull up many options of types of doctors or facilities to visit). But what sets it apart, at least for now, is telemedicine, or unlimited phone calls with physicians, and greater price transparency.

It was dreamed up by a group of Harvard Business School tech entrepreneurs and investors and built by whiz-kid engineers and designers from Facebook, Google and Tumblr. With financing from big venture capital names and a cutesy ad campaign splashed all over New York City’s subways, Oscar has the new-era tech pedigree to become the Spotify, Airbnb or Uber of health insurance.

But what Oscar doesn’t have — yet — is the numbers. Depending on how you slice and dice the data, the 10,600 New Yorkers who had signed up as of late March represent anywhere from 2 to 5 percent of all individuals who enrolled in plans.

The New York insurance market — like many others across the country — is highly competitive and fragmented. Oscar and other new entrants have discovered that many individuals are buying insurance through established, brand-name companies. After that, they are going for price, choosing plans that charge smaller monthly premiums.

Oscar is neither a household name nor the cheapest plan out there.

But its founders are quick to paint Oscar’s small customer base as a victory. Those numbers, which they expect to grow to about 13,000 before the deadline, have far exceeded their expectations, they say. Moreover, they say, it’s not all about the numbers.

“We’re not a social app that is trying to chase the most hits. We’re trying to build something that’s going to turn the industry on its head,” says Mr. Kushner from Oscar’s offices in the landmark Puck Building, which is owned by his family.

Tall and lanky with a boyish face that is highlighted by brown hair that tends to shoot in different directions, Mr. Kushner is a spinning star in the constellation of young entrepreneurs and investors leading the latest wave of tech start-ups.

He is the youngest son of Charles Kushner, a real estate tycoon, philanthropist and major Democratic political donor, who spent time in jail nearly a decade ago for tax evasion, witness-tampering and other charges.

It was while attending Harvard Business School that Joshua Kushner started his venture capital firm, Thrive Capital, with his older brother, Jared, who owns The New York Observer and is married to Ivanka Trump.

Attracting money from heavyweight institutions like Princeton and Duke University, Thrive has made investments in some of this era’s fevered tech companies, including Kickstarter, Spotify and Instagram.

Photo

The Oscar office in Manhattan. The firm offers phone calls with physicians with quick callbacks and comparisons of doctors’ fees.Credit
Joshua Bright for The New York Times

But Mr. Kushner’s turn into the health insurance business came about three years ago when he did what millions of Americans had done before him: He opened up his own insurance bill and couldn’t understand a thing.

Seeing an opportunity to apply new technologies to an old business, Mr. Kushner started putting together the pieces for what would become Oscar. Oscar, named for Mr. Kushner’s great-grandfather, has, to date, raised about $75 million from a virtual who’s who of venture capital firms, including Peter Thiel’s Founders Fund, Khosla Ventures and General Catalyst Partners.

Certainly parts of Oscar are necessary pieces of an old-school insurance company. It rents its network of doctors and hospitals from another company, MagnaCare, and outsources its claims processing to another.

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Under all its plans, Oscar allows its members unlimited free calls with physicians. The doctors are supposed to call back within an hour, but on average, calls are returned within seven minutes of being placed, says Mr. Nazemi. (Of course, many primary care physicians already provide this type of service to their existing patients.)

These calls can provide a quick diagnosis and a prescription sent directly to a pharmacy for common ailments like pink eye and urinary tract infections. Oscar pays the physicians $40 a call, which is significantly less than it would reimburse for an office visit.

One individual who called had taken a tumble in the subway and wondered if his arm was broken, recall Oscar’s executives. Over the phone, the doctor took the patient through a range of motions and determined that the arm wasn’t broken. He advised putting an ice pack on it and seeing the primary care physician the next day. That saved the patient an expensive trip to the emergency room, Oscar’s founders said.

Patients in some of Oscar’s plans can also receive a handful of free physician visits each year and free generic drugs.

Oscar’s founders are also big on providing clarity for patients on what different types of care centers may cost, based on how much of the deductible the patient has met, and how costs can vary even among doctors.

Leaning toward his laptop, Mr. Kushner types in “asthma,” and a variety of care options pop up — for instance, primary care doctor, pulmonologist, urgent care center and emergency room. Under each of these categories is a price estimate, based on Oscar’s analysis of four years of claims data from the company it outsources from, of what the patient’s out-of-pocket costs will be under the various situations. A visit to the primary care physician may cost $80 to $200, while a trip to the emergency room could run upward of $700.

Then, going a step further, if a patient chooses to see a specialist, say, the pulmonologist, Oscar pulls up a map of New York dotted with specialists much as Yelp shows nearby Turkish restaurants.

Noting big differences in cost among Park Avenue doctors, Mr. Kushner clicks on a pulmonologist in that expensive ZIP code, which opens a window with a short biography of the physician, including his years in practice and the languages he speaks, and also his average charges. Mr. Kushner clicks on a specialist across the street. His average charges are much less.

“Why is it that a colonoscopy will cost you $2,000 at one place and $4,000 somewhere else? Why does an M.R.I. cost between five and 20 times more at a hospital than it does at an outpatient facility? That’s just mind-boggling to me,” says Mr. Kushner, tugging on his hair in frustration. “What we’re doing here — showing prices — should have been done 20 years ago.”

Dr. Giovanni Colella, the chief executive and a co-founder of Castlight Health, applauds efforts by Oscar to improve price transparency for patients. He says its model could easily be replicated by other insurers.

“If Oscar becomes a massive organization and has big success through showing prices, believe me, health plans will do it as well,” says Dr. Colella.

Leaning back in his chair, Mr. Kushner says it would be fine if other insurers copied Oscar’s efforts to provide pricing information to customers. No, he pauses, that would be great.

A version of this article appears in print on March 29, 2014, on Page B1 of the New York edition with the headline: Start-Up Health Insurer Finds Foothold in New York. Order Reprints|Today's Paper|Subscribe